How Much Money Does A Federal Employee Need In Retirement?

How can federal employees use the 80% rule to plan for their income needs during retirement?

You might have read the common rule of thumb is that you should have “80% of your pre-retirement income in retirement to maintain the same lifestyle”. How much money should you really have, and how does this “rule” pertain to federal employees?

The “80% rule” is what many financial professionals and articles have told pre-retirees to shoot for. It is simply a general rule that does not apply to everyone.

I have assisted federal employees who needed more than 80% of their pre-retirement income and some that were able to retire comfortably on 50% of their pre-retirement income.

The “80% Rule” luckily is not a steadfast rule for every federal employee. To know what percentage of your pay you need for your specific situation you need to evaluate your income needs in retirement.

A federal employee who still has children in college that they’re helping pay tuition for will likely need more income than a federal employee who has paid off all their debts and no longer has dependent children.

Everyone’s needs are unique. To know how much income you’ll need, you need to ask yourself three questions:

1. When do I want to retire?

The first key element in your retirement income planning is knowing when you’d like to retire. Do you want to retire as soon as you might be eligible, in your late fifties? Or do you enjoy your job and want to work as long as possible?

As you may know, federal employees can be eligible for retirement as early as age 55 for regular employees and even earlier for special provisions. If you want to retire sooner rather than later, that will likely require extra planning and more diligence on your part to save and lower monthly expenses.

Knowing when you are going to retire will also give you a better idea of what your monthly expenses will be. If you retire in your 50s you might still have a mortgage payment compared to having it paid off in your 60s. You might still have children dependent upon your income where they will hopefully be self-sustaining if you’ve reached your 60s. Again, each season of life usually brings different expenses and different needs.

Last thing to think about is if you retire earlier, you will have more retirement years. If you retire in your 50s and you live to your mid 90s that means you’ll have 40 years of retirement income to plan for! You’’ll have to plan on making your savings last and plan for inflation.

2. What will my monthly expenses be?

Now that you know when you want to retire, look at your monthly expenses and what type of income you’ll need at that time.

If you’re retiring in your 50s and your monthly expenses will be about the same as when you were working, then you’ll need closer to that “80% rule” and need more income in retirement.

Maybe you’re going to retire later though. Maybe retiring later, your monthly expenses will be lower for whatever reason. That could be: you pay off a mortgage, you’re moving to a less expensive area, your children will be moving out or any number of things. If that’s the case and your monthly expenses are less than when you were working, you can probably get by with less income. You probably don’t need 80%; maybe you can maintain the same lifestyle with 60 or 70% of your income.

As I mentioned earlier the “80%” rule is general and everyone’s needs are unique. The “80% rule” is not the “80% law”. Do a little number crunching and figure out your own “rule”. 

3. What do I want to do in retirement?

Another factor that could affect your income needs is what you want to accomplish in retirement. There could be additional income needs for travels, vacation homes, or hobbies. If you retire and you’re experiencing a new country every month then obviously there will be additional expenses for that. If you want to hit the golf course every day then you’ll need to plan for that golf membership!

What you want in retirement could mean your expenses will be lower though. If you want to move from New York City to rural Florida then in that case your expenses will almost certainly go down. Asking yourself what you want to accomplish and experience in retirement will also give you a good gauge on how that will affect your monthly expenses.

Other Considerations

Evaluating these three questions for yourself will give you a great foundation in starting your income planning for retirement. Now that you have a good foundation there are a couple other things I recommend you consider.


The first is inflation. If you have just enough to retire with no other additional assets, you may want to delay your retirement or lower your monthly expenses. Having just barely enough means things could get very tight for you if you do live a long healthy retirement.

COLAs, or Cost of Living Adjustments, on pensions and Social Security do not keep true pace with inflation. It’s something every federal employee should plan for.

Gross vs. Net Pay

The second is gross vs net pay. When you read the “80% Rule” most financial professionals are talking about gross pay. They’re talking about your pay before taxes and deductions off your check.

My personal opinion for federal employees is they should look at “take home” or net pay. A lot of federal employees who have worked for the government for dozens of years are often surprised how close they can be to their take home pay with just their pension and Social Security. Federal employees have considerably less deductions coming off of their retirement than they do their salary. Deductions like FICA Taxes, Pension Contributions, TSP Contributions, and Medicare taxes do not come off of your pension. When you compare Net Income, often times it’s easier to maintain the same lifestyle and transition into retirement easier.

Taking the time to ask yourself those three questions will help answer your main question, “How much money do I need in retirement?”.

Securities and Advisory Services Offered Through Creative One Securities, LLC Member FINRA/SIPC and an Investment Advisor. FedSmart Retirement Planners and Client One Securities, LLC are not affiliated. Not Affiliated with OPM or any federal agency​.

About the Author

Jesse Black has over 18 years of experience assisting Federal Employees with their retirement. He’s a nationally known Federal Retirement Planner. He has assisted thousands of Federal Employees one-on-one and thousands more have attended his webinars and seminars. He Co-hosts FedSmart Podcast and Co-Founded FedSmart Retirement Planners.